January 5, 2011
*****************
*********
Question
*********
Ken
When filing UCC financing form you wrote that there is $7 charge or so for filing and recording. Once recorded does whatever amount; $100 or $2000 accumulate any interest and if so what’s the percentage and does it vary by state?
1. Does the UCC-1 lien accumulate any interest ?
2. I have a situation where I just installed basic system for almost no cost because of the stiff competition in NJ and client is about to default, he stated that he sold his business and if I want I can go to the new owner so he can keep paying for the monitoring (which most likely will happen).
And my question is this; if I take him to court over the monitoring and he will argue that the new owner is paying monitoring now, will have valid argument and case could be dismissed? Or, I if I want to file UCC-1, what would I file against if he rented the place? (I’m aware that I can’t do both, court and UCC-1, or can I?)
Thanks
HSS
*********
Answer:
*********
You are confusing the filing of a UCC-1 with the underlying debt. The UCC does not create the debt, your contract does. Your contract permits you to file a UCC because it grants you a security interest, collateral, as a secured creditor, to secure that debt, past, present of future. The "security agreement", in this case your alarm contract, authorizes you to "perfect" your lien by recording a financing statement, referred to as a UCC-1. That is "notice to the world" that you have the lien. So the lien or UCC does not accrue interest, but your underlying debt does.
The amount of interest depends on your contract, which could call for a default level interest, such as 18 or 24% per annum. If no interest rate is specified then the debt will accrue interest at the state's legal rate. New York's rate is 9%. I don't know other state's legal rates.
Your lien is effective as against the debtor [your subscriber] even if you don't file the UCC - though I don't recommend relying on that. If you don't file the UCC-1 then any subsequent owner of the collateral will take free and clear of your lien. Thus, when your subscriber sells its business, or house, without a filed UCC-1 the new owner takes the property free of your lien, unless the new owner was on some other notice that you had a lien on the collateral. Even then you may lose the lien. So bottom line - file the UCC-1 if you intend to pursue the collateral.
You can file the UCC-1, perfecting your lien, and still pursue an action at law to recover the debt, not the collateral. In most jurisdictions you can't pursue both legal and equitable actions at the same time, so you have to decide if you want to sue to recover the collateral or sue on the debt. If you recover the collateral you can sell it and then sue for the balance owed to you. If you sue on the debt and can't recover anything, you can then sue to recover the collateral, if you can still find it. I am probably overly simplifying all this, or making it too confusing. Best you consult with your attorney before deciding on a course of action involving the lien or collecting the collateral or debt. Call me with any additional questions or for more specific legal advice.